Earlier this week, the Chancellor presented his Autumn Statement, claiming it was about long-term growth for the economy. But did we see any real tax changes or was this all just smoke and mirrors? Below we outline the key measures that will affect you and give you our insight and opinion.

Full expensing

Full expensing and the associated 50% First Year Allowance will be made permanent by Autumn Finance Bill 2023, instead of ending on 31 March 2026 as originally intended.

Full expensing is the ability to offset certain expenditure against profit in the year it is incurred. On paper this sounds great, but the Annual Investment Allowance already does this, albeit it is capped at £1m. Most small businesses are not investing more than £1m in capital items.

Our Opinion – Smoke and Mirrors.

National Insurance

Class 1 (employee NICs) – The main rate of employee Class 1 NICs will be reduced by 2%, from 12% to 10%.

Class 2 (self-employed NICs) – Class 2 NICs will be abolished for Self-employed individuals.

Class 4 (self-employed NICs) – Main rate Class 4 NICs will reduce by 1%, from 9% to 8%.

Ok, on the face of it saving NI looks like a good thing for the self-employed, which it is. But this saving needs to be considered with the fact that National Insurance thresholds (the rates above which national insurance is paid) have been frozen since 2022 and are due to remain so until April 2028. Due to the effects of inflation and wage growth, more people have been dragged into higher tax and national insurance bands, because of the so-called fiscal drag.

Our Opinion – Smoke and Mirrors.

National Living Wage (NLW) and National Minimum Wage (NMW)

From April 2024:

  • The NLW will increase to £11.44 per hour and be extended to include those aged 21.
  • The NMW for those aged 18-20 will increase to £8.60 per hour.
  • The apprentice rate increases to £6.40 per hour.

A collective sigh was heard amongst business owners when this was announced. This will undoubtedly increase the pressure on small businesses and force them to raise prices. Cynically, could this be a way of appealing to voters and increase the tax taken, at the expense of small business owners?

Our Opinion – Positive for Employees – Negative for Employers.

Expanding the cash basis

Legislation will be introduced by Autumn Finance Bill 2023 to set the cash basis as the default method for calculating trading profits for the self-employed and partnerships.

  • The turnover, interest, and loss relief restrictions that currently apply will be removed.
  • Businesses not wishing to calculate their profits using the cash basis will need to make an election to use the accruals basis.

This is an interesting one and is paving the way for MTD – this will make it easier for sole traders to prepare their accounts but eliminate some opportunities for tax planning.

Our Opinion – Neutral

Simplifying Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA)

The government plans to make design changes to MTD for Income Tax.

  • Simplifying the requirements for all taxpayers in providing quarterly updates and for taxpayers with more complex affairs, such as landlords with jointly owned property.
  • Removing the requirement to provide an End of Period Statement.
  • Draft regulations will be published for technical consultation later in 2023 with a large-scale public beta testing programme commencing in 2025.
  • It has been confirmed that MTD for ITSA will not be extended to businesses with income below £30,000 for the foreseeable future, though this will remain under review.

MTD for income tax has been a looming shadow for years – expect more announcements on this as we go. If you are a sole trader or partnership and prepare your accounts to any other period than 31st March / 5th April, you are already feeling the effects of this as this is a transition year for you.

The £30K limit is welcome though.

Our opinion – Positive (ish)

Abolition of Pensions Lifetime Allowance

From 6 April 2024:

  • As announced at Spring Budget 2023, Autumn Finance Bill 2023 will remove the Lifetime Allowance.

The current lifetime allowance of £1m for input into a pension pot seems unattainable to most people, but abolishing it is a positive thing.

Our opinion – Positive

Business rates: retail, hospitality, and leisure relief

From April 2024:

  • The current 75% relief for eligible Retail, Hospitality and Leisure properties is extended for 2024-25.
  • Around 230,000 retail, hospitality, and leisure properties in England will be eligible to receive support up to a cash cap of £110,000 per business.

This will be a huge relief to those businesses in this sector that are worried about this relief coming to an end.

Our Opinion – positive

Conclusion

As a rule, I try not to read any news articles in the build up to a budget, they predict all sort of things -their favourite seems to be about inheritance tax. Once again this was absent from the Chancellors’ speech.

This budget was meant to be a tax cutting budget but, in our opinion, it was all smoke and mirrors with the exception of a small nod to sole traders. The fact that thresholds for Income Tax and NI are not being increased will increase the tax burden on employees. So much for a low tax Conservative Party.